BELLAMY’S AUSTRALIA LIMITED For personal use only · profits in calendar year 2016) ... time to reduce inventory levels due to the lead time on ingredient orders and production

BELLAMY’S AUSTRALIA LIMITED ABN 37 124 272 108

ASX (Appendix 4D)

Interim Report

for the half-year ended 31 December 2016

This report is provided to the Australian Stock Exchange (ASX) under ASX Listing Rule 4.2A.

For

per

sona

l use

onl

y

1

BELLAMY’S AUSTRALIA LIMITED

Results for Announcement to the Market for the half-year ended 31 December 2016

(Previous corresponding reporting period: Half-year ended 31 December 2015)

1. Key Information

Definitions

Net Tangible Assets = Total equity less goodwill and other intangible assets

Net Tangible Assets per share - Total equity less goodwill and other intangible assets/ shares on issue

Net tangible asset backing has increased over the period as net tangible assets have increased (primarily due to

profits in calendar year 2016) while shares on issue have only increased marginally by 30,128 ordinary shares to

96,686,525 shares on issue (2015: 96,634,354 ordinary shares on issue).

2. Commentary on Results

Bellamy’s is implementing a turnaround strategy aimed at improving returns for all stakeholders. We continue to

be a leading brand in the Australian and China markets and have a strong platform to build upon. It will be an 18

month journey to return the business to sustainable growth. We have made good progress since December

2016. We have met our guidance in terms of revenue, and normalised Earnings Before Interest and Tax (EBIT)

and Net Profit After Tax (NPAT). As a result of reduced production, surplus raw ingredients have been revalued

down by $2.1m to recoverable value. This resulted in EBIT being below guidance.

Half-year ended

31 December

2016

Half-year ended

31 December

2015

Period

movement

up/(down)

Consolidated entity $'000 $'000 %

Revenue 118,297 105,143 12.5%

EBIT 10,105 19,155 (47.2%)

Profit before income tax expense 10,070 19,460 (48.3%)

Income tax expense (2,834) (5,804) (51.2%)

Net profit after income tax expense 7,236 13,656 (47.0%)

Dividends

Franked

amount per

security

cents

Interim dividend (prior year) 4.10

Final dividend (prior year) 7.80

No dividend has been declared in respect of the current financial year

Net tangible assets backing

Half-year ended

31 December

2016

Half-year ended

31 December

2015

Period

movement

up/(down)

Basic earnings per share (cents) 7.5 14.2 (47.2%)

Diluted earnings per share (cents) 7.2 13.9 (48.2%)

Net Assets 83,950 63,211 32.8%

Net tangible assets 81,949 62,939 30.2%

Net assets per share (cents) 86.8 65.4 32.8%

Net tangible assets per share (cents) 84.8 65.1 30.2%

For

per

sona

l use

onl

y

2

Financial Performance

In respect of 1H17, the Company achieved Revenue of $118.3m (1H16: $105.1m), EBIT of $10.1m (1H16:

$19.5m) and NPAT of $7.2m (1H16: $13.7m).

The major impact on profitability in the half was the recognition of significant items totalling $8.6m as outlined in

Note 4. Excluding the impact of these items, normalised earnings results would have been as follows:

(1) Refer Note 4 for details of individually significant items. (2) Bellamy’s has followed the guidance for underlying profit as issued by the ASIC regulator Guide RG230 ‘Disclosing non-IFRS

information’. The profit and loss summary with a prior period comparison in the table above, has been sourced from the accounts but has not

been subject to separate review or audit. The Directors believe that the presentation of the unaudited non-IFRS profit and loss summary in

the table above is useful for users as 1H17 includes significant items that are not expected to repeated in future years. The table reflects the

normalised earnings of the business.

Revenue and Profitability

Bellamy’s grew revenue for 6 consecutive halves before declining 15.1% in 1H17. A build up of ‘Australian label’

inventory by China/Hong Kong resellers in 2H16 and 1H17 led to an oversupply, causing widespread

discounting on Chinese e-commerce platforms, which was revealed after the results of Singles Day were known.

This impacted the competitiveness of the Daigou channel and slowed Bellamy's Australian sales.

The gross profit margin for the half-year of 39.5% was down 6.2 percentage points on the 2016 full year result of

45.7% (1H16: 41.6%). The decrease in margin is the result of changes in the Company’s customer mix, an increase

in the cost of organic ingredients in order to secure supply, and directly focused promotional activities in 1H17.

(A$m)

Statutory

Profit

Significent

items(1)

Normalised

result(2)

Statutory

Profit

Significant

items

Normalised

result

Revenue 118.3 - 118.3 105.1 - 105.1

EBIT 10.1 8.6 18.7 19.2 - 19.2

Profit before income tax expense 10.1 8.6 18.7 19.5 - 19.5

Net Profit after income tax expense 7.2 6.0 13.3 13.7 - 13.7

1H17 1H16

For

per

sona

l use

onl

y

3

Expenses

Expenses have increased by $11.6m as a result of investments in marketing costs and employee costs with

increased headcount.

Marketing and promotion costs represent the largest single increase in costs, equating to 6.7% of Revenue for

the half (1H16: 1.9% of Revenue). While the increased investment in marketing was intentional to support

revenue growth, the marketing spend was not as effective as intended and will be redirected to more effective

channels as well as joint marketing with customers in current and future periods.

Employee costs increased along with headcount. The headcount level grew to support a larger business and has

been reduced to a sustainable level post balance date.

Costs of $5.0m were included in direct costs in the previous half in relation to brand building. In 1H17 there was

a greater focus on discounting to retailers to support revenue, these costs are included in net revenue.

Balance Sheet

Cash at 30 June 2016 of $32.3m reduced to $15.6m by 31 December 2016 primarily due to increases in inventory.

As a result of the increased production during the half the business increased its inventory levels by $34.9m to

$102.7m as at 31 December 2016 (1H16: $67.7m).

Borrowings increased by $14.5m to $14.6m as at 31 December 2016. The company has in place a $40.0m banking

facility to manage working capital while efforts are deployed to reduce inventory levels to manageable levels whilst

maintaining a pricing strategy that is reflective of the premium branded products produced by Bellamy’s. It will take

time to reduce inventory levels due to the lead time on ingredient orders and production schedules. With this in

mind, the Company anticipates no material change in inventory levels at the end of FY17.

Cash Flow

Net cash outflows from operating activities was $23.7m. There were no shortfall payments made in 1H17.

Bellamy’s focus going forward will be on positive cash flow generation by reducing production (payments to

suppliers), better cost management and restructuring of sales channels.

Outlook

The Company provides 2H17 guidance of revenue between $105m to $120m and EBIT margin of between 8%

and 10%. Normalised EBIT margin is expected to range between $11m and $15m (10% and 13%). Combining

1H17 actual with 2H17 guidance, FY17 revenue is expected to be between $220m to $240m with an EBIT

margin of between 8% and 10%.

Net Profit after Tax for 2H17 and FY17 is expected to range between 4% and 6% of Revenue.

January and February are typically slower months because of Chinese New Year. However, Bellamy’s has met

the Company’s internal forecasts over this period.

Bellamy’s focus moving forward

The strategy of the current board and management is focused on four imperatives:

1. Establish credibility and stability with the trade

2. A continued focus on cost management

3. Focus on transition to positive free cash flow

4. Reinvest in the Brand and increase market penetration

Significant progress has been achieved in rebuilding our management team, improving operating performance,

reducing costs and restructuring sales channels to China.

For

per

sona

l use

onl

y


4

BELLAMY’S AUSTRALIA LIMITED Consolidated interim report for the half-year ended 31 December 2016

CONTENTS

Directors’ report 5

Auditor’s independence declaration 6

Interim financial report 7

Consolidated statement of profit and loss and other comprehensive income 7

Consolidated balance sheet 8

Consolidated statement of changes in equity 9

Consolidated statement of cash flows 10

Notes to the consolidated financial statements 11

Directors’ declaration 18

Independent auditor’s review report to the members 19

Corporate directory 21 This interim financial report does not include all the notes of the type normally included in an annual financial report. Accordingly, this report should be read in conjunction with the annual report for the year ended 30 June 2016 and any public announcements made by Bellamy’s Australia Limited during the interim financial reporting period in accordance with the continuous disclosure requirements of the Corporations Act 2001.

For

per

sona

l use

onl

y


5

Directors’ Report

Your directors present their report on the consolidated entity consisting of Bellamy’s Australia Limited and the

entities it controlled (“the Company” or “Bellamy’s”) at the end of, or during, the half-year ended 31 December

2016 as follows:

Directors

The following persons were directors of Bellamy’s Australia Limited during the whole of the half-year and up to the

date of this report.

- Rob Woolley (Chair)

- Laura McBain (Managing Director and Chief Executive Officer) (resigned 23 January 2017)

- Michael Wadley

- Launa Inman

- Patria Mann

- Charles Sitch

Company overview

Bellamy’s is an Australian producer, supplier and marketer of 100% organic baby food and formula.

Headquartered in Tasmania, Bellamy’s offers a range of organic food and formula products for babies and toddlers,

starting with an organic infant formula suitable from birth.

Review of Operations

The review of operations is set out on pages 1 to 3 of the Appendix 4D half-year report, together with the

Company’s half-year media release.

Auditor’s independence declaration

A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is

set out on page 6.

Rounding of amounts

The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument

2016/191, issued by the Australian Securities and Investments Commission, related to the ‘rounding off’ of

amounts in the directors’ report and the financial report. Amounts in the directors’ report and financial report have

been rounded off to the nearest thousand dollars in accordance with that ASIC Instrument.

This report is made in accordance with a resolution of directors.

____________________________

Rob Woolley

CHAIR

Melbourne

24 February 2017

For

per

sona

l use

onl

y


6

For

per

sona

l use

onl

y


7

Consolidated statement of profit and loss and other comprehensive income For the half-year ended 31 December 2016

Half-year 2016 2015

$'000 $'000

Revenue 118,297 105,143

Cost of Sales (71,536) (61,402)

Gross Profit 46,761 43,741

Other income 186 643

Direct costs (distribution & other costs) (14,620) (13,312)

Employee costs (8,103) (5,300)

Marketing and promotion costs (7,922) (1,944)

Administrative and other costs (5,875) (4,541)

Depreciation and amortisation (322) (132)

Earnings before net interest and tax (EBIT) 10,105 19,155

Net interest revenue/(expense) (35) 305

Profit before income tax 10,070 19,460

Income tax (expense)/benefit (2,834) (5,804)

Net profit for the half-year 7,236 13,656

Other comprehensive income (net of tax) Items that may be reclassified subsequently to profit and loss Exchange differences arising from translation of wholly owned foreign entities (1,184) (392)

Change in fair value of cash flow hedges 440 -

Total comprehensive income for the half-year 6,720 13,264

Earnings per share

Basic earnings per share (cents) 7.5 14.2

Diluted earnings per share (cents) 7.2 13.9

The above Consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the

accompanying notes.

For

per

sona

l use

onl

y


8

Consolidated Balance Sheet As at 31 December 2016

31 December

2016 30 June

2016 Note $'000 $'000

ASSETS Current assets Cash and cash equivalents 15,632 32,295 Trade and other receivables 50,300 33,887 Inventories 7 102,710 67,752 Other financial assets - 500 Financial assets at fair value through profit and loss

- 283

Other assets 513 4,475

Total current assets 169,155 139,192

Non-current assets Property, plant & equipment 1,174 1,105 Intangible assets 2,001 1,704 Deferred tax assets (net) 3,428 1,500

Total non-current assets 6,603 4,309

Total assets 175,758 143,501

LIABILITIES Current liabilities Trade and other payables 64,482 48,373 Borrowings 10 14,584 113 Provisions 533 328 Derivatives 756 807 Current tax liabilities 11,274 10,495

Total current liabilities 91,629 60,116

Non-current liabilities Borrowings - 18 Provisions 179 146

Total non-current liabilities 179 164

Total liabilities 91,808 60,280

Net assets 83,950 83,221

EQUITY Issued capital 40,620 40,216 Reserves 3,229 2,829 Retained profits 40,101 40,176

Total equity 83,950 83,221

The above Consolidated Balance Sheet should be read in conjunction with the accompanying notes.

For

per

sona

l use

onl

y


9

Consolidated statement of changes in equity For the half-year ended 31 December 2016

Note Issued capital

Foreign currency

translation reserve

Cash flow

hedge reserve

Share based

payment reserve

Retained earnings

Total equity

$'000 $'000 $’000 $'000 $'000 $'000 Balance at 1 July 2016 40,216 (373) (565) 3,767 40,176 83,221

Profit for the half-year - - - - 7,236 7,236

Other comprehensive income

- (1,184) 440 - 228 (516)

Total comprehensive income

- (1,184) 440 - 7,464 6,720

Issue of shares 404 - - - - 404

Dividends - - - - (7,539) (7,539)

Share based payments - - - 1,144 - 1,144

Balance at 31 December 2016

40,620 (1,557) (125) 4,911 40,101 83,950

Note Issued capital

Foreign currency

translation reserve

Cash flow

hedge reserve

Share based

payment reserve

Retained earnings

Total equity

$'000 $'000 $’000 $'000 $'000 $'000

Balance at 1 July 2015 39,655 (159) - 499 8,916 48,911

Profit for the half-year - - - - 13,656 13,656

Other comprehensive income

- (182) - - (210) (392)

Total comprehensive income

- (182) - - 13,446 13,264

Issue of shares 323 - - - - 323

Dividends - - - - (2,722) (2,722)

Share based payments - - - 3,435 - 3,435

Balance at 31 December 2015

39,978 (341) - 3,934 19,640 63,211

The above Consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

For

per

sona

l use

onl

y


10

Consolidated statement of cash flows For the half-year ended 31 December 2016

Half-year 2016 2015

Note $'000 $’000

Cash flows from operating activities

Cash receipts from customers 102,489 90,638 Cash payments to suppliers and employees (121,718) (87,952)

Cash generated from operations (19,229) 2,686 Interest received 80 311 Other revenue - 7 Dividends received - 2 Interest paid (115) (6) Income taxes paid (4,401) (4,234)

Net cash outflow from operating activities (23,665) (1,234)

Cash flows from investing activities

Proceeds sale property plant & equipment 16 -

Purchases of property plant & equipment (238) (487)

Proceeds on sale of investments 297 -

Purchases of intangibles (348) (188)

Net cash outflow from investing activities (273) (675)

Cash flows from financing activities Proceeds from share issue - 323 Proceeds/(repayment) of borrowings 14,453 (54) Dividends paid to Company’s shareholders (7,136) (2,722)

Net cash inflow / (outflow) from financing activities

7,317 (2,453)

Net increase / (decrease) in cash equivalents (16,621) (4,362) Cash and cash equivalents at the beginning of the half-year 32,295 32,035 Effect of exchange rate changes on cash and cash equivalents

(42) 24

Cash and cash equivalents at end of the half-year

15,632 27,697

The above Consolidated statement of cash flows should be read in conjunction with the accompanying notes.

For

per

sona

l use

onl

y


11

Notes to the consolidated financial statements 1. Critical estimates and judgements

Estimates and judgements supporting the preparation of the Financial Statements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances. The Company makes estimates and assumptions concerning the future. The most significant estimates and assumptions made in the interim financial statements are discussed below. Future working capital requirements

The Company has assessed its working capital requirements for the business for a 12 month period from the date of signing the interim financial statements. The assessment of the Company’s working capital requirements is based on a forecast of sales, production requirements, production shortfall payments and overheads. The forecast is based on the period from 1 February 2017 to 28 February 2018 (defined as “the forecast”). Forecasts are based on the strategic plans of the current board and management.

The critical judgements in relation to the assessment of working capital requirements are considered below.

The sales forecast is based on a combination of historic trends, engagement with key customers, internal demand analysis and external market information. The sales forecast is dependent on estimates of demand in both the domestic market and sales to distributors/resellers into China and other markets.

There are proposed changes to regulations affecting the sale of the Company’s products in China which would be applicable on 1 January 2018. These China regulations will require specified types of imported products to be accredited with the China Food and Drug Administration. The forecast assumes this accreditation is achieved for the Company’s infant formula brand. With the support of our manufacturing supplier, Bellamy’s is well progressed for timely accreditation. Should the manufacturing supplier not proceed with, or not prioritise, Bellamy’s product, registration could be delayed beyond 1 January 2018. Bellamy’s is confident that registration could be achieved with other manufacturers.

The forecast also includes judgement in relation to the extent of production shortfall payments which may be required under the Company’s manufacturing arrangements (refer note 2 for further information). Shortfall payments are based on an estimate of the shortfall of expected production versus minimum production volumes as defined in the production contracts.

The Company has also considered the forecast in relation to compliance with financial covenants under its banking facilities and assessed the likelihood of compliance with other obligations associated with these banking facilities. Based on the forecast the Directors believe the Company will continue to trade within the limits of the available banking facilities and comply with its financial covenants and ancillary obligations. However, the Directors acknowledge there are business risks and uncertainties which could result in forecast earnings and cash flows not being achieved.

The Directors consider alternative funding options are likely to be available to the Company, if required.

The Directors have prepared the accounts on a going concern basis, taking into consideration the judgements above, and are confident the Company will meet its working capital requirements over the forecast period based on the strategy of the current board and management.

Net realisable value of inventory

The valuation of inventory is considered an area of judgement on the basis that the assessment of whether inventory is valued at lower of cost or net realisable value is based on the sales forecast. The sales forecast is based on significant judgements as indicated above. Should sales forecasts not be achieved inventory may not be sold within the expiry period.

Manufacturing contracts

The accounting for manufacturing contracts is based on estimates and judgements in relation to future production levels.

Based on the current forecast the Company has assessed that the economic benefit of the manufacturing contracts exceeds

the cost of the contracts (including anticipated shortfall payments) and therefore the contracts are not considered onerous.

Further information with respect to production shortfall payments is included in note 2.

2. Commitments and Contingent Liabilities

Shortfall payments

The Company has manufacturing arrangements with suppliers/manufacturers which run over a number of years. The key

manufacturing contracts have minimum volume commitments to secure access to the necessary manufacturing facilities.

Where the Company is not able to fulfil minimum volume commitments, it is required to make production shortfall payments.

For

per

sona

l use

onl

y


12

The minimum volume commitments are based on each individual contract year (which differs from the Company’s financial

year). At each reporting period a provision is raised when production thresholds have not been met or the Company does

not have the ability to meet the threshold under the contractual terms.

At 31 December 2016, the Company had met the production volumes under the contractual arrangements to date and

therefore no provision for production shortfall payments has been recognised. At 30 June 2017 an assessment will be

required in relation to achievement against the relevant thresholds for the various contracts (which have differing contract

years). The Company has estimated that for the year ended 30 June 2017, production shortfall payments in the range of $6

million to $8 million may need to be accrued for as an expense, depending on production volumes achieved between

January 2017 and June 2017. An additional expense may be incurred during FY18 if contractual volumes are not met, which

is currently estimated to be between $11 million and $13 million. In FY19 if production levels remain consistent with FY18 a

similar expense may be incurred. Beyond FY19 shortfall payments and the related expense may continue over the term of

the contracts and could increase or decrease depending on the level of production.

Contingent Liability

As announced by the Company on 23 February 2017, Slater & Gordon Limited has commenced a representative proceeding (shareholder class action) in the Federal Court of Australia against the Company. The statement of claim includes allegations of contraventions of the Corporations Act 2001(Cth) in relation to misleading or deceptive conduct and continuous disclosure obligations. The proceeding is brought on behalf of persons who acquired Bellamy’s shares between 14 April 2016 and 12 December 2016. Bellamy’s intends to vigorously defend the proceeding. The Court documents do not quantify the damages that the claimants will seek in the proceeding for all or any part of the claim period. Bellamy’s does not consider that there is a reasonable basis on which to estimate any potential liability and no provision has been recognised in the financial statements.

3. Subsequent Events

Since 31 December 2016:

a. The HSBC banking facility was re-negotiated to, amongst other things (i) increase the limits applying to certain of the sub-facilities provided by HSBC (the overall facility limit for all facilities was not changed) and (ii) set out the conditions which must be satisfied in order for the Company to be permitted to grant second-ranking security to Fonterra (as described in item (b) below) and (iii) include additional ancillary obligations. For more information on the banking facilities see Note 10.

b. The Company has amended its manufacturing contract with its key manufacturing partner, Fonterra. In support of the Company’s and Fonterra’s commitment to a long term strategic manufacturing arrangement, the parties have agreed to amend their five-year manufacturing contract, extending the term by a further three years to apportion minimum volume commitments over a longer period. This amendment is conditional on the Company and certain subsidiaries granting Fonterra second-ranking security over their assets, subject to Bellamy’s obtaining the consent of its bank. Under the manufacturing contract with Fonterra, Fonterra and Bellamy’s each have termination rights, including in the event of a change of control. As part of the amendment, two additional grounds for termination by Fonterra have been added. The first applies if a person or group of persons acquires 50% or more of Bellamy's voting shares. The second applies if a person or group of persons acquires 30% or more of Bellamy's voting shares and, in Fonterra’s opinion, that person or group has effective control of Bellamy’s. Further information on this contract was contained in the Company’s announcement to ASX titled ‘Business Update’, released on 11 January 2017.

c. The CEO Ms McBain was replaced by Mr Cohen on 11 January 2017. Ms McBain resigned as a director of the company on 23 January 2017.

d. A shareholder of the Company has requisitioned an Extraordinary General Meeting (EGM) of the Company with the purpose of removing four of the existing independent, non-executive directors, being Patria Mann, Launa Inman, Michael Wadley and Charles Sitch, and electing three new proposed directors. The EGM will be held on Tuesday, 28 February 2017. A notice of EGM was lodged with the ASX and sent to shareholders on 19 January 2017.

e. As noted in the Contingent Liability note above, on 23 February 2017, Slater & Gordon Limited has commenced a representative proceeding (shareholder class action) in the Federal Court of Australia against the Company.

f. Litigation funders and several plaintiff law firms are reviewing potential class action claims on behalf of

shareholders of the Company against the Company for alleged breaches of its continuous disclosure obligations and for alleged misleading and deceptive conduct.

For

per

sona

l use

onl

y


13

4. Significant items

Half-year

2016 2015

$'000 $'000

Profit for the half-year includes the following items that are material due to the significance of their nature and/or amount:

Included in operating expenses

Inventory provisions and write-offs 6,838 -

Legal, accounting and restructuring 1,018 -

Ineffective foreign exchange hedges 727 -

8,583 -

5 Operating Segments

Description of segments

Operating segments are determined in accordance with AASB 8 Operating Segments. To identify the operating segments of

the business, management has considered the business from both a product and geographical perspective, as well as

considering the way information is reported to management and the Board.

Segment revenues are derived from the sale and distribution of organic branded formula and food products to babies and

toddlers. Management has determined that there are three operating segments based on geographical location. The operating

segments have been redefined based on the geographical location of the retailer/reseller in respect of the direct sale by the

Company to reflect how the business is now managed. Previously segments were determined based on Management’s

assumption of the location of the end consumer. This change has been implemented to simplify reporting and to eliminate

judgement in determination of identification of the end consumer. The three operating segments are as follows:

i) Australia – revenues derived from sales to retailers and resellers within Australia

ii) China / Hong Kong – revenue derived from sales to Chinese distributors and online sales from third party websites to Chinese customers.

iii) Other / South East Asia – sales to other distributors and retailers, predominantly in South East Asia.

Management primarily uses a measure of earnings before interest and tax (EBIT) to assess the performance of the operating

segments.

Total assets and liabilities are measured in a manner consistent with that in the financial statements. These assets are

allocated based on the operations of the segment and physical location of the asset.

Australia

China/ Hong Kong

Other/ South East

Asia

Group Total

31 December 2016 $'000 $’000 $'000 $'000

Revenue from external customers 77,464 37,632 3,201 118,297

Other revenue 153 32 1 186

Total segment revenue 77,617 37,664 3,202 118,483

Segment EBIT 15,107 6,659 (28) 21,738

Unallocated expenses * (11,633)

Group EBIT after unallocated expenses 10,105

Net financing revenue/(costs) (35)

Profit before tax 10,070

Total segment assets - 31 December 2016 145,979 9,882 836 156,697

Total segment liabilities - 31 December 2016 61,434 2,793 254 64,482

* Unallocated expenses includes corporate costs of $3.1m and significant items as outlined in Note 4 above.

For

per

sona

l use

onl

y


14

Australia

China/ Hong Kong

Other/ South East

Asia

Group Total

31 December 2015 $'000 $’000 $'000 $'000

Revenue from external customers 89,752 13,925 1,466 105,143

Other revenue 174 269 201 644

Total segment revenue 89,926 14,194 1,667 105,787

Segment EBIT 18,369 3,564 (49) 21,884

Unallocated expenses * (2,729)

Group EBIT 19,155

Net financing revenue/(costs) 305

Profit before tax 19,460

Total segment assets - 30 June 2016 91,089 17,463 1,154 109,706

Total segment liabilities - 30 June 2016 46,931 1,352 90 48,373

* Unallocated expenses includes corporate costs

Reconciliation of segment assets and liabilities

Australia

China/ Hong Kong

Other/ South East

Asia

Group Total

31 December 2016 $'000 $’000 $'000 $'000

Segment assets 145,979 9,882 836 156,697

Unallocated

Cash and cash equivalents 15,632

Deferred tax assets (net) 3,428

Total assets 175,758

Segment liabilities 61,435 2,793 254 64,482

Unallocated

Provisions (employee benefits) 712

Borrowings 14,584

Derivatives 756

Current tax liabilities 11,274

Total liabilities 91,807

Australia

China/ Hong Kong

Other Export

Group Total

30 June 2016 $'000 $’000 $'000 $'000

Segment assets 91,089 17,463 1,154 109,706

Unallocated

Cash and cash equivalents 32,295

Deferred tax assets (net) 1,500

Total assets 143,501

Segment liabilities 46,931 1,352 90 48,373

Unallocated

Provisions (employee benefits) 474

Borrowings 131

Derivatives 807

Current tax liabilities 10,495

Total liabilities 60,280

For

per

sona

l use

onl

y


15

5. Operating Segments (cont.)

The amounts provided to the Board of Directors with respect to total assets and liabilities are measured in a manner consistent with that in the financial statements. These assets are allocated based on the operations of the segment and the physical location of the asset.

6. Income tax

The effective tax rate calculated for the year to 31 December 2016 is 28.1% of Company revenue, compared to 29.8% for the six months ended 31 December 2015. Excluding the tax incentive recognised in respect of the 2016 Research & Development claim, the effective tax rate would be 29.6% for the period.

7. Inventory Dec 2016 Jun 2016

$000 $000

Raw Materials 12,917 20,726

Finished Goods 82,055 35,109

Goods in Transit 7,738 11,917

Inventories 102,710 67,752

Inventories are valued at the lower of cost and net realisable value. As at 31 December 2016, the Company has taken up $6.8m of inventory provisions and write-offs to ensure that finished goods and ingredients stock is accurately stated at its net realisable value.

8. Issued capital

31 December 31 December

2016 2015 2016 2015

Shares Shares $000 $000

Opening balance at 1 July 96,656,397 95,000,392 40,216 39,655

Issue of ordinary shares during the half-year:

Employee option plan – options exercised - 1,633,962 - 323

Dividend Reinvestment Plan 30,128 404 -

Closing balance at 31 December 96,686,525 96,634,354 40,620 39,978

On 14 October 2016, 614,746 options were granted to executives and employees under the Bellamy’s Australia Limited employee option plan. These options have a vesting date of 31 August 2019. On 2 September 2016, 30,128 shares were issued to existing shareholders under the Bellamy’s Australia Limited Dividend Reinvestment Plan. As at 31 December 2016, executives and employees held options over 3,650,408 (2015: 2,345,712) ordinary shares of the Company.

9. Dividends

Half-year

2016 2015

$'000 $'000

(a) Ordinary Shares

Dividends paid during the half-year 7,539 2,722

On 2 September 2016, a fully franked final dividend of 7.8c per share was paid in respect of the year ended 30 June 2016 (2015: 2.86c fully franked). (b) No dividends have been declared in respect of the half-year ended 31 December 2016.

For

per

sona

l use

onl

y


16

Half-year

10. Borrowings Dec 2016 June 2016

Current $'000 $'000

Secured

Trade financing 14,472 -

Asset purchase liabilities 83 184

Total secured borrowings 14,555 184

Unsecured

Insurance funding 29 -

Total unsecured borrowings 29 -

Total borrowings 14,584 184

Funding Note

HSBC provides a working capital facility to the Company in an aggregate amount of $40 million, together with a credit card facility of $250,000 and a bank guarantee facility of $200,000 (together, the “facilities”). The working capital

facility is comprised of a number of sub-facilities with specific conditions and limits, with the effect that the Company’s ability to utilise the working capital facility is subject to those conditions being satisfied and those limits not being exceeded. The facilities are secured over assets of the Company and are subject to the Company complying with its obligations (including financial covenants) under those facilities. At 31 December 2016, the aggregate amount outstanding under the facilities was $14.5 million and the Company was in compliance with its obligations under those facilities. Based on current forecasts, the Company expects that the Company will remain in compliance with those obligations.

11. Related party transactions

Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated.

No Director has entered in to a material contract with the Company during the half-year and there were no material contracts involving Director's interests existing at period end.

12. Basis of preparation of half-year report

This condensed consolidated interim financial report for the half-year reporting period ended 31 December 2016 has been prepared in accordance with Accounting Standard AASB 134 Interim financial Reporting and the Corporations Act 2001.

The condensed consolidated interim financial report does not include all the notes of the type normally included in an annual financial report. Accordingly, this report is to be read in conjunction with the annual report for the year ended 30 June 2016 and any public announcements made by Bellamy's Australia Limited during the interim reporting period in accordance with the continuous disclosure requirements of the Corporations Act 2001.

The accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period, except as set out below. The half-year financial statements have been prepared on the basis of accounting policies consistent with those applied in the 30 June 2016 annual report, with the exception that described in Note 5 (Operating Segments).

(a) New accounting standards and interpretations

The following new accounting standards and interpretations became effective from1 July 2016 i) 2010 - 2014 Annual Improvements Cycle (AASB 2015-1)

ii) AASB 15 Revenue from contracts with customers

iii) AASB 16 Leases

For

per

sona

l use

onl

y


17

The AASB has issued a new standard for the recognition of revenue. This will replace AASB 118 which covers revenue arising from the sale of goods and the rendering of services and AASB 111 which covers construction contracts. The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer. The standard permits either a full retrospective or a modified retrospective approach for the adoption. The new standard is effective for the first interim period within annual reporting periods beginning on or after 1 January 2018, and will allow early adoption. Management is currently assessing the effects of applying the new standard on the Company’s financial statements however it is not expected to have a significant impact on the results of the Company. At this stage, the Company is not able to estimate the effect of the new rules on the Company’s financial statements. The Company will make more detailed assessments of the effect over the next twelve months. The Company does not expect to adopt the new standard before 1 January 2018. Under AASB 16 the distinction between operating and finance leases is removed for lessees. The income statement will be affected as operating lease expenses will be replaced by interest and depreciation, and the timing of expenses will also change, typically higher in the earlier years of a lease and lower in later years. Key ratios and metrics are likely to be affected as EBITDA will increase and recognising new lease assets and

liabilities will significantly affect balance sheet ratios such as leverage.

Lease term and lease payment are defined more broadly under AASB 16 than under the previous standard.

The standard provides more guidance on the inclusion of extension options in the lease term and the treatment of

variable lease payments for clauses including CPI increases and turnover-based rent. The removal of ‘off-balance

sheet’ operating leases brings into focus the distinction between a lease and a service arrangement, which is not

accounted for on balance sheet.

The new guidance focuses on the principle of control and whether a lessee has the right to control the use of an

identified asset during the lease term; it may give a different classification to the previous standard, which focused

on risk and rewards. The group does not expect to adopt the new standard before 1 January 2019.

For

per

sona

l use

onl

y


Directors’ declaration

18

In the Directors’ opinion:

a) The financial statements and notes set out on pages 7 to 17 are in accordance with the Corporations Act 2001, including:

I. complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements, and

II. giving a true and fair view of the consolidated entity’s financial position as at 31 December 2016 and of its performance for the half-year ended on that date and

b) there are reasonable grounds to believe that Bellamy’s Australia Limited will be able to pay its debts as and when they become due and payable.

This declaration is made in accordance with a resolution of the Directors.

____________________________

Rob Woolley

CHAIR

Melbourne

24 February 2017

For

per

sona

l use

onl

y


19

For

per

sona

l use

onl

y


20

For

per

sona

l use

onl

y


21

Corporate Directory Bellamy’s Australia Limited ABN 37 124 272 108 ASX Code BAL Principal registered office & Principal administration office Bellamy’s Australia Limited 115 Cimitiere St Launceston TAS 7250 T: (03) 6332 9200 www.bellamysorganic.com.au Company Secretaries Mr Brian Green Mr Dimitri Kiriacoulacos Location of Share Registry Link Market Services Limited Level 1, 333 Collins Street Melbourne VIC 3000 External auditor PricewaterhouseCoopers 2 Riverside Quay Southbank Vic 3006

For

per

sona

l use

onl

y

Documents

BELLAMY’S AUSTRALIA LIMITED For personal use only · profits in calendar year 2016) ... time to reduce inventory levels due to the lead time on ingredient orders and production